Deloitte sees India’s GDP growing 6.6% in FY26, but Trump’s tariff threats loom large over trade outlook

India’s economic momentum is expected to hold steady in the face of global trade uncertainties, with global consulting firm, Deloitte forecasting GDP growth at 6.6% in FY2026, buoyed by tax-driven consumer spending and robust domestic indicators.

The forecast, part of Deloitte India's latest economic outlook, suggests that while trade headwinds pose significant risks, the government’s tax stimulus — including ₹1 lakh crore in income tax cuts, which was announced in the Budget this year—will partially offset the drag by increasing disposable incomes and spurring consumption among the middle class.

Deloitte economist Rumki Majumdar pointed out that the fiscal measures outlined in the Union Budget 2025 are expected to provide a near-term boost to consumption, estimating that this could contribute as much as 0.6% to 0.7% of GDP in FY25 and FY26.

“The tax exemptions will increase disposable income in the hands of the young population with higher income elasticity. People will no longer need to invest under Section 80C to save taxes,” she noted.

She added that the resulting consumption multiplier could generate economic activity worth ₹6.7–7.9 lakh crore in the medium term.

“Lower inflation, stable oil prices, softening borrowing rates, and a more accommodative monetary policy stance will create favourable conditions for consumer-led growth,” Majumdar said.

Despite concerns arising from a slowdown to 6.1% GDP growth in FY2025 (till Q3) — attributed to election-related uncertainty and erratic rainfall — Deloitte said that it remains ‘cautiously optimistic.’ Revised FY2024 figures showed a stronger-than-expected 9.2% growth, and recent rebounds in GST collections, auto sales, and FMCG demand suggest domestic resilience, the consulting firm noted.

Global Trade Risks Cloud Outlook

However, uncertainty over US-India trade negotiations looms large. Deloitte warned that without a timely bilateral agreement, India could face reciprocal tariffs of up to 28.2% on its exports to the United States by FY2026 — significantly denting competitiveness in sectors like textiles and electronics.

At present, Indian goods exports face a 10% ad valorem base tariff in the US, on top of the 2.2% most favoured nation (MFN) average rate. A further 16% differential tariff, currently on hold for three months, could be activated by year-end, raising the effective average to 28.2%, it noted.

“Indian exports to the US are more price-sensitive than imports, which makes retaining export competitiveness critical,” said Majumdar. Deloitte estimated that unresolved trade tensions could shave 0.1% to 0.3% off GDP growth, depending on how swiftly and effectively India negotiates a bilateral agreement.

Deloitte showed that for India, three scenarios could exist: a worst-case 26% reciprocal tariff, a moderate 10% rate, or an intermediate arrangement. If India secures a deal ahead of other nations, it could gain from increased US market share, especially in electronics, where India’s exports — including computing components — have been rising, it noted.

“An agreement by fall could flip trade headwinds into tailwinds,” Majumdar said, suggesting it would also send strong signals to investors and bolster long-term confidence.